Zee Group Crisis Explained | Why Zee companies stocks are falling?

On 25the January
2019, ZEE Group experienced a fall of almost 30-35% in their stock prices. The
stocks of Zee Entertainment and Dish TV saw major falls, and Essel Propack also
saw some falls.

Zee Group has more
that 100 subsidiaries. And this is always the problem with such groups. Their
core business is running very smoothly and efficiently, but because of the
hunger for extra growth such mistakes happen.

When one says
ZEE, media and entertainment is first things that comes to mind. Majority of
the people and investors don’t know that ZEE also has its investments in solar
projects, power projects and such others. For this hunger of extra growth
through diversification such groups do a lot of mistakes.

ZEE group has taken up a debt of almost Rs. 17,000 crores. And this debt is not on their core of media and entertainment but on other infrastructure business. The business of ZEE entertainment is running very nicely without any problems. And in this repayment of Rs. 17,000 crores ZEE group is facing problems.

How
did the Group take on so much Debt?

Zee
Entertainment Enterprise Limited (ZEEL)

Stock Price & Market Cap

In January 2018, the stock price of ZEEL was around Rs. 600 and the market cap was almost Rs. 60,000 crores.

And today in January 2019, the stock of ZEEL is around Rs. 320 and the market cap has also come down to almost Rs. 30,000 crores. The stock has fallen by 50%.

Promoter Holding

The promoter holding in ZEEL is close to 41.62%. So, the promoter holding valuation is close to RS. 12,500 crores according to the current price. That is the promoter holding valuation in January 2018 was almost Rs. 25,000 crores.

From this 41.62%, they pledged 60% of the holding to take up debts. And they took on this debt to manage their other businesses.

So basically, they took on loans on their successfully running business to help run their other uncertain businesses.

Dish
TV

Stock
Price & Market Cap

In January 2018, the stock price of Dish TV
was around Rs. 84 and the market cap was almost Rs. 16,000 crores.

And today in January 2019, the stock of ZEEL
is around Rs. 22 and the market cap has also come down to almost Rs. 4,000
crores.

Promoter
Holding

The promoter holding in ZEEL is close to 68%.
So, the promoter holing valuation is close to RS. 2,720 crores according to the
current price. That is the promoter holding valuation in January 2018 was
almost Rs. 25,000 crores.

From this 68%, they pledged 82% of the holding
to take up debts. That is, they have pledged almost Rs. 2,200 crores.

Another smoothly functioning company from
where they have taken on loan which they are not able to service and have put
burden on Dish TV.

So, this how they
took on so much debt by pledging their smoothly functioning business and to try
to manage other unsuccessful businesses. Those business are even making losses
for the group.

Letter
from the Promoter

Mr. Subhash Chandra has a written letter to all the creditors like banks, NBFCs, Mutual funds, etc. In the letter it is mentioned that company is not able to repay the loans in short term as the business is not going as per plan and there is a liquidity crunch. In this letter, it has been accepted that mistakes have been made and also have made wrongs bids for some projects like buying of Videocon D2H

He has also said
the there is nothing wrong with the companies (ZEEL, Dish TV, Essel Propack) of
the group. The problems that have arrived are because of the call taken and the
decisions made by the promoters.

Possible
Solution

ZEE Group is in
talks with foreign companies such as Sony to sell their holding in ZEEL and
Dish TV to create liquidity. The liquidity thus created will be used to
decrease the debt portion on them. They will try to bring the debt under
control.

Recent
Updates

The creditors, who have lent money to the group, are okay with the current situation of ZEE as the group has promised them that they will find solutions within the next 6 months. They have also promised that no default will happen from their side.

This is a very
positive sign for the Group and its companies.

Summary

There
is nothing wrong with their operating companies. They have very rich cash
flows.

What
will happen in the future and the how the things will take turns will only be
understood after ZEE Group makes some statements about this and what future
action plans they will take on.